2019/03/16 by Simone Manganelli, Manganelli, Simone
Economics, Econometrics and Finance · Mathematics · #Econometrics (econ.EM) #FOS: Computer and information sciences #FOS: Economics and business #Methodology (stat.ME) #econ.EM #stat.ME
paper · pdf · doi:10.48550/arxiv.1903.06980
arxiv created 2019/03/16 · arxiv updated 2019/03/19
A decision maker starts from a judgmental decision and moves to the closest boundary of the confidence interval. This statistical decision rule is admissible and does not perform worse than the judgmental decision with a probability equal to the confidence level, which is interpreted as a coefficient of statistical risk aversion. The confidence level is related to the decision maker's aversion to uncertainty and can be elicited with laboratory experiments using urns a la Ellsberg. The decision rule is applied to a problem of asset allocation for an investor whose judgmental decision is to keep all her wealth in cash.